Thanks for the help Jonathan. Option 2 may fail one of the validation, we are not forcing the user to choose one of the options appearing from the list. A user may have the option not to select any of the option and move forward. In a nutshell we have validation that selected person should be a valid person name. Can this be achieved from this option list?

You could add some custom JavaScript validation to the autocomplete/typeahead to ensure that a valid value is set.

Here are a few more blog posts about autocomplete:
https://blogs.oracle.com/ATEAM_WEBCENTER/entry/autocomplete_for_metadata_in_webcenter
http://vedranstanic.wordpress.com/2011/12/01/making-cs-ootb-metadata-option-lists-autocomplete-and-multiselect/